Every year pastors across the United States are faced with high tax bills as they deal with both the realities of being responsible for paying both income tax and self-employment taxes.
Many of these same pastors may be missing an additional tax deduction they could claim.
For many pastors, in a variety of denominations, to maintain their ministerial credentials they are required to pay a fee (sometimes referred to as the pastor’s tithe) to a regional district or national office.
Until the passage of TCJA in 2018, many of these clergy simply deducted these payments as charitable contributions on Schedule A. However with the increased Standard Deduction from TCJA, many taxpayers no longer itemize their deductions, and the deductibility of these payments has been lost if left on Schedule A.
The loss of this deduction with the TCJA tax reform legislation may have cost clergy in this circumstance as much as $2000 in tax overpayments on their 2018 tax returns.
But there is a remedy to recapture these taxes for 2018 and beyond!
In 1992 there was a little known court ruling that allows mandatory payments such as these to be treated as licensing fees and included as a business expense on a clergy’s tax return. Since the time of the 1992 ruling the most tax efficient treatment of these payments has been to deduct them as a business expense on a Self Employed Schedule C (or simply on the SE form, if a Schedule C was not filed) thereby reducing both personal income tax and the SE tax assessed on both Salary and Housing Allowance.
For these fees to be treated this way the tithe/licensing payment MUST be mandatory to maintain the status as a credentialed minister.
For those clergymen who have historically treated these payments as charitable contributions, they should file an amended return for 2018 and up to three years earlier.
If you are clergy in this circumstance call Wisdom Over Wealth to discuss your specific tax situation and for assistance in filing amended returns to recapture prior year tax overpayments. Call Bill OConnell at 877-823-3101 x1.